Phase Three
Budgeting & Finance
- Estimate your project budget
- Understand the types of financing available
- Know how an ADU might impact your property tax assessment and home value
Project timeline
Budgeting is part of the Planning phase, which typically takes 1-3 months. Most ADU projects take 12-18 months to complete, but some extend to 24 months or more.
Key Resources for BudgEting & Finance
Step-by-Step
Estimate your project cost
BuDgeting & Finance Step 1
It is helpful to avoid having a fixed budget total in your head as you explore your options, because budgets are difficult to pin down this early in the process. That said, our ADU Calculator is a great place to start when developing a budget. It provides a rough estimate of costs and potential rental income and will help you understand how choices can impact your budget over time. Our Workbook and Exercises also have helpful information to get started, and our custom Feasibility Consults can help you get more specific.
The average hard cost per square foot is between $400-$700, but many decisions can dramatically increase those costs. For example, a complex roof can cost tens of thousands of dollars. The level of fit and finish, such as flooring, cabinets, and appliances, can be 30% of the total cost. Working with your architect and general contractor together on value engineering from the beginning is critical to keeping costs down.
In addition to the hard costs of construction, there will be some soft costs as you develop your design and move through the permitting process. Fees for an architect range from $5,000-$25,000 for example. You will also need an energy analysis of your project, often called a Title 24/CalGreen report ($300-700). You may need a soils report from a Geotechnical Engineer ($2,000-$6,000). In total, soft costs can range from $5,000-$30,000. Impact fees charged by the local jurisdictions have been waived for projects under 750SF, and school fees are waived for projects under 500SF but permit processing fees remain (generally under $10,000 but it depends on the jurisdiction).
Key Resources
Assess financing options
Budgeting & Finance Step 2
There are five main options available to homeowners to finance their ADU. Many homeowners use a mix of these options. As you’re doing financial planning for your ADU, remember to include the rental income you’ll receive in your calculations. Some lenders will not consider this income when evaluating you for a loan, but it’s important for you to consider it in your calculations. Our ADU Calculator tool helps you plug in financing info and calculate how long it will take for you to see a return on your investment (hint: not very long)!
Learn more about ADU financing options from our on-demand webinar, How to Finance Your ADU and our webinar The Financial Case for Building an ADU Now and Not Later.
- Cash savings or other liquid assets
- Cash-out refinance
- Loans from friends or family
- Home equity loan or home equity line of credit (HELOC)
- Renovation loans
For more information on financing an ADU, watch another on-demand webinar with Redwood Credit Union on their NEW ADU construction loan which opens up $300K in ADU financing for homeowners with low income &/or low equity! Plus, see CalHFA’s new $40K predevelopment grant for ADUs! And look up the local finance experts available on our Vendor Registry here. In addition, check out this comprehensive overview of ADU financing from the statewide Casita Coalition.
Related Blog posts
FAQs
Find answers to the most frequently asked questions about budgeting and finance.
What will it cost to build an ADU?
Our ADU Calculator is a great place to start when developing a budget. It provides a rough estimate of costs and income and will help you understand how choices can impact your budget over time. In general, it is helpful to avoid having a fixed budget total in your head as you explore your options.The cost to build an ADU typically ranges from $30,000 for a simple interior conversion JADU, to $400,000+ for a large detached ADU with high-end finishes on a hillside lot. Cost per square foot is a good way to estimate, though this too can range — a very rough placeholder for you to use is $400-700 per square foot for construction and other costs (design, fees, etc.), depending on your design and the materials you chose.
See more details about costs – including design, permitting, and construction – in our ADU Workbook. Also see our blog post on 5 hidden costs.
How am I going to pay for an ADU?
There are five main options available to homeowners to finance their ADU. Many homeowners use a mix of these options.
- Cash savings or other liquid assets
- Cash-out refinance
- Loans from friends or family
- Home equity loan or home equity line of credit (HELOC)
- Renovation loans
As you’re doing financial planning for your ADU, remember to include the rental income you’ll receive in your calculations. See more details about financing options in the steps on the Budgeting and Finance page and in our Workbook and Exercises.
What if I don’t have a lot of money available right now to build an ADU?
If you have equity in your home, a cash-out refinance or home equity loan/line of credit (HELOC) might work for you. Some banks and credit unions have begun offering specialized ADU financing that can help people with lower incomes or equity qualify for an ADU construction loan.
How will building an ADU affect my taxes and property value?
Adding an ADU will likely affect your property taxes and the resale value of your home. However, your primary house will not be reassessed, and your property taxes will only increase based on the added value of your ADU. For example, if you build an ADU that adds $150,000 to your property value, and your tax rate is 1%, your taxes will increase by 1% x $150,000, or $1,500 per year.
Building a JADU will have a significantly smaller impact on assessed value. In some cases, your taxes will not increase at all. Home sharing will also not increase the assessed value of your home. Generally, garage conversions will not raise your tax bill as much as new construction, but they will also not add as much value.
Check out our blog post on the subject to learn more. You can also watch this helpful 4 minute video from ADU company Maxable on property tax implications!
Each property will require a one-on-one analysis to determine the added value of an ADU, so contact your County’s Assessor Office once you have an idea of your plan. They will be able to provide you with a rough estimate of tax implications.
Adding an ADU may impact your income taxes as well. This can be rather complicated, and it’s best to discuss these with a tax advisor.
Can I eventually sell my ADU separately from the main building?
No. You will need to record in a deed restriction for the property that the ADU cannot be sold separately from the primary home. California passed a law that does allow for ADUs to be sold separately but it requires the jurisdiction to “opt-in” to allow it, and as of the time of this FAQ (Summer 2024) only San Jose has allowed for the separate sale of an ADU.
What about the money I could make renting the ADU?
Rental income is a major benefit of having an ADU or JADU on your property – for many people, it provides flexibility in their budget or an opportunity to grow their savings. Our ADU Calculator can help you estimate how much rental income could be generated by your new unit. Note that many locations do not allow ADUs to be rented for less than 30 days at a time – confirm with local Planning staff in your community.
How much does it cost to design an ADU?
Design costs cover the work of your architect or designer and may or may not include engineering, surveying, and other professional services necessary to prepare for permitting. Together, these services may total around 10% of your total project budget – the exact amount depends on the details of your property and project. See the Budgeting and Finance page for more details.
How much does it cost to get permits for an ADU?
ADUs can be charged a variety of fees from your local government, the State, and other agencies. Some fees are based on details of the project while others are fixed. The total amount depends highly on your property and plans, but local staff can most likely provide an estimate once you have a good idea of your project details. See the Budgeting and Finance page, our ADU Calculator, and our ADU Workbook for more details.
